The Government’s proposal to give local councils powers to let vacant High Street properties through compulsory rental auctions appears to be pushing ahead despite industry concerns, says commercial property agent Prop-Search.
The Government has now published draft legislation – the Levelling-up and Regeneration Bill - aimed at unlocking new powers for Local Authorities to bring empty premises back into use and instigate rental auctions of vacant commercial properties in town centres and on high streets.
Samantha Jones, an Associate Director of Prop-Search, says: “Under the Bill, a Local Authority will be able to designate a street or an area as important to the local economy because of the concentration of high street uses. The range of high street uses defined in the Bill is wide and includes shops, offices, restaurants and light industrial, but not warehouses. Once designated, vacant units are vulnerable to Local Authority intervention if it considers occupation would be beneficial to the local economy, society or environment.”
A unit is determined as vacant if it is unoccupied for a year or, broadly, if it has been unoccupied for at least 366 days in the last two years. If premises qualify, the Local Authority can serve notice on the landlord, valid for 10 weeks, during which the landlord will not be able to let the property without the Local Authority’s consent and then only if the letting begins within 8 weeks, lasts for at least a year and will have people regularly present at the property.
If no tenancy has been agreed within 8 weeks, the Local Authority can serve a final notice. At this point, the landlord can serve counter notice and, if necessary, appeal.
Grounds for appeal include: the premises were not vacant or not suitable for the Local Authority's intended high-street use; the local benefit argument is not met; the landlord intends to carry out substantial works of construction, demolition or reconstruction affecting the premises; the landlord intends to occupy the premises for the purposes of business or as a residence; and the Local Authority failed to consent to a letting during the initial letting notice.
If the landlord doesn’t appeal or is unsuccessful, the property can be taken to auction. Once a successful bidder has been identified, the Local Authority will enter into a contract with that bidder for a short-term tenancy of the premises. This will be for a term of at least one year, but not exceeding five years, and will take effect as if it was entered into by the landlord.
Samantha concludes: “These proposals are understandably controversial and there is some scepticism whether they will achieve the desired effect.”
“Whilst business premises remain empty, without any lease in place, the burden of paying business rates falls to the landlord. Many landlords facing such large rates bills are already offering units on peppercorn or nominal rents to mitigate this liability and if there is no appetite for them on this basis, is there going to be any interest in the rental auction?”
She adds: “Re-invigorating the high street is what all parties want but in a workable framework. Prospective tenants looking to bag a high street property at a Local Authority auction may not be so keen on the rates liability, and nothing in the Bill suggests there will be any rates mitigation schemes for the lucky auction winners. That would definitely help the high street.”
The Royal Institution of Chartered Surveyors (RICS) while welcoming the move to bring empty commercial property back into use, has also commented that the Government’s proposals to effectively force commercial landlords to rent out an empty property may be ‘too blunt a tool’ and one which does not fully address the challenges faced in the retail sector. They have said that the reasons why many shops are unoccupied are complex, including demand, business rates, planning permission, shifting consumer habits with the rise of online retail, and this proposed new legislation does not address these issues.
So, landlords with empty high street properties beware……